4. Assessment of actual and potential effects
4.4 Assessment of the proposal against RMA’s criteria
The purpose of the RMA is to promote the sustainable management of natural and physical resources. Section 5 RMA defines this as managing resources in a way that enables people and communities to provide for their well-being while sustaining potential, safeguarding life-supporting capacities and avoiding, remedying or mitigating adverse effects on the environment.
In economic terms, this purpose revolves around taking account of various types of externalities that arise when actions have consequences that are borne by others than those responsible for the actions. This is most readily apparent in Section 5(2)(c)’s reference to adverse effects of activities, but there are also potential inter- temporal externalities at the heart of the idea of sustainability and safeguarding life support capacities in Sections 5(2)(a) and 5(2)(b).
Other parts of RMA of particular relevance to economic assessment of new electricity generation proposals include Section 7(b)’s reference to the efficient use and development of natural and physical resources, Section 7(i)’s reference to the effects of climate change, and Section 7(j)’s reference to benefits derived from the use and development of renewable energy. Section 104 also directs consideration of the compatibility of proposals with various statements of government policy and strategy.
In considering the economic implications of the proposed Puketoi Wind Farm for an assessment of environmental effects it is useful to view the implications against criteria drawn from the RMA. These include:
• Contribution to people’s and community’s well-being (section 5(2));
• Relevance to resource use efficiency (section 7(b));
• Relevance to the benefits of renewable energy (section 7(j));
• Existence of an externality that can be addressed effectively through the RMA.
Puketoi wind farm is expected to have 159 to 326 MW installed capacity once completed, at a capital cost of around $432 to $701 million. Once operational it will employ around 20 full time staff on operations, maintenance and monitoring, and directly or indirectly stimulate other expenditures in the local economy. These figures are indicative of the likely economic impact of Puketoi wind farm, but such benefits are not unique to this proposal, as all new developments have similar impacts, the significance depending on the scale of the operation. Investment activity has a positive stimulatory effect on the local economy, but is not its primary economic effect.
Figure 7 Summary of economic effects
Illustrative estimates of the likely range of economic net benefit
Category of effect Description Likely RMA Assessment Effects on power producers
Increased production from wind farm
site from harnessing of wind Resource efficiency gain in obtaining power and added value from the site, shared
between generators and landowners Significant Efficiency from synchronising wind and
hydro operation No quantified Minor Reduced greenhouse gas emissions
Reduction of 278,461 to 991,168 tonnes CO2 per year, probably worth between $6 and $30
million Significant Effects on power consumers
Displacement of higher cost power generation and suppression of price rises
Efficiency gain from lower cost energy, diffuse and not quantified Minor
Avoidance of transmission losses
Central region has excess generation and exports power, displacing longer distance transmission (SI to NI); efficiency gain not quantified
More than minor
Transmission upgrades Brings forward the cost of transmission upgrades; not quantified and no externality as it is handled through the Grid Investment Test
Minor
Reduced probability of supply disruption
As non-hydro generation, provides added security against hydro-based constraints and grid constraints, but adds variability of wind – not quantified
Minor
Effects on third parties
Displacement of activities (farming,
recreation) Limited specific information. Less than minor Reduced greenhouse gas emissions Details as above, but a third part benefit to the
extent that costs are not borne by emitters Significant Other environmental effects Not assessed as part of this report Not assessed Local economic impacts
Expenditure impacts Direct impact of $138-$171m spent locally on construction, $12-$21m/year on operations n.a.
Employment impacts Direct impact of 200 FTE in construction, 20 in operations and maintenance n.a.
Source: NZIER
The quantified and non-quantified economic effects of Puketoi wind farm with capacity of 159 to 326 MW are outlined in the Figure 7. There are quantifiable benefits for emissions avoidance in the order of $6 million to $30 million per year, assuming that fossil-fuelled generation is displaced, depending on whether it is gas or coal, and on the price of carbon used. The net non-quantified effects would need
to eclipse these efficiency gains from Puketoi wind farm and be negative to more than offset them.
The estimates are indicative of the proposed Puketoi wind farm’s potential to achieve gains in resource use efficiency, relevant to Section 7(b) RMA. They are also indicative of its potential contribution to people’s and communities’ well-being (section 5(2)), although it should be noted that because the Puketoi wind farm can supply power to the national grid, those benefits are not confined to the local community but are spread across power consumers nationwide.
Puketoi wind farm is likely to improve resource use efficiency in various ways:
• Technical efficiency of generation capacity in New Zealand will be raised by a new wind plant with higher output than some existing plant;
• Allocative efficiency will be raised by deferring new thermal plant whose long term costs are likely to rise with fuel costs and emission concerns;
• Dynamic efficiency is served by enabling this response to future energy price signals and shifting electricity generation to a greater diversity of renewable capacity.
The balance of effects on the environment needs to be determined through detailed impact assessment. However, unless Puketoi wind farm creates significant adverse effects whose avoidance, remedy or mitigation would incur substantial real resource costs, in generating power from a hitherto under-utilised resource, Puketoi wind farm will increase resource use efficiency in this location and make a positive contribution to sustainable management by reducing greenhouse gas emissions.
The proposed Puketoi Wind Farm is an example of the benefits of the use and development of renewable energy (Section 7(j)). It is also in accord with recent government policy statements with respect to renewable preference and climate change amelioration, as given in the New Zealand Energy Strategy.
To the extent that Puketoi wind farm will contribute to suppression of power price rises, deferring new generation and displacing some long distance transmission with associated losses, there are positive external effects on other parties that the developer does not capture. Reducing the liability of New Zealanders to pay for greenhouse gas emissions has also hitherto been an externality – but with the Emissions Trading Scheme covering electricity generation since July 2010, the explicit price of carbon emissions will be reflected in the cost of thermal generation and internalise this effect in the electricity market. Hence although the reduction of greenhouse gas emissions is clearly beneficial and in accord with government objectives, there is no externality provided the emissions trading scheme continues in operation.